Privileged No More: Court Finds Attorney-Client Privilege Does Not Survive After “Death” of a Corporation
The attorney-client privilege is one of the most powerful arrows in the quiver of corporate counsel because of the sheer volume of different situations in which it can be used. The privilege comes in handy for corporate investigations, discussions with outside counsel, and even day to day company issues that can be easily, and confidentially, dealt with through legal advice from the corporation’s lawyers. But what happens to those confidential communications when the corporation ceases to exist?
For individuals, it is firmly established that the attorney-client privilege survives after a person’s death. The reasoning behind this rule is that a person will be more willing to have frank and open discussions with their lawyers knowing that they can take those discussions with them to the grave. Because they may be concerned about a loss of reputation or civil liability that harms their family and friends, people may be unwilling to seek legal advice in their lifetime if they know those communications may be disclosed after they die. Thus, courts have almost uniformly held that an individual person’s claim to the attorney-client privilege can be asserted after that person’s death. The question becomes whether those same concerns justify the survival of a corporation’s attorney-client privilege after dissolution?
In SEC v. Carrillo Huettel LLP, 2015 U.S. Dist. LEXIS 45988 (S.D.N.Y. April 8, 2015), the United States District Court for the Southern District of New York recently held, based on “the weight of authority,” that the attorney-client privilege does not survive a corporation’s death. The Carrillo court examined the justifications for preserving the attorney-client privilege of an individual and found that “the interests that are furthered by the extension of the privilege beyond the death of a natural person simply do not apply in the context of a corporate entity.” Id. at *6. For instance, the court said that the idea of corporate management hesitating to confide in corporate counsel out of concern for some future disclosure after the company’s death was “too remote and hypothetical” to justify limiting discovery. Id. at *7. The court bolstered its conclusion by pointing out that its limitation on corporate attorney-client privilege was consistent with the “principle that the privilege is to be construed narrowly because it withholds relevant information from the judicial process.” Id. at *8.
Carrillo is not the first court to find that a corporation’s attorney-client privilege ends with the death of the company. Federal district courts in the Third, Sixth, Seventh, Ninth and Eleventh circuit have also reached similar results. While the court in Carrillo was correct that the disclosure of privilege communications after a corporation’s death will have few implications for the defunct corporation itself, practically speaking the rule can affect the individuals who worked for the defunct corporation as well as any successor entity of the defunct corporation that could come into being under relatively common circumstances such as, for instance, corporate restructuring for tax, bankruptcy, or other economic reasons. Thus, businesses should be aware of potential down-the-road effects of Carrillo and other similar court decisions.